What are the steps for buying a house for the first time

What Are The Steps For Buying A House For The First Time?

What Are The Steps For Buying A House For The First Time?

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Buying a home will most likely be the largest purchase of your lifetime. It could also be a scary, confusing and frustrating process as well. I’ve been purchasing real estate for over two decades, I’m a former licensed realtor and an avid real estate investor. I want to share with you my lessons learned and all the necessary steps for you to successfully purchase your first home.

What kind of credit score do you need to qualify for a home loan?

You need to get your credit in order today! This ties directly to the loan you can get for the investment property, the better the credit score you have, the lower the interest rate you will be able to qualify for on your home loan. It is that simple. By improving your creditworthiness, you also put yourself in a much stronger position to shop around with multiple lenders, having them compete for the best loan terms and rates for you. 

As of the recording of this video you want your credit score to be somewhere between at least 740 to 760 and north of that is even better. There are tons of free resources out there that can help you do this today. By far the best company out there to monitor your credit can get your credit report for free is Credit Karma. If you haven’t done so already, stop what you’re doing and open an account up with Credit Karma. I have a link for them below.

#1 Rated For Free Credit Reports & Credit Scores

#1 Rated For Free Credit Reports & Credit Scores

Monitoring your credit score on an ongoing basis is part of your ongoing journey to financial wellness. The best company out there for this is Credit Karma. You can access your credit score and credit report anytime you need it. I continue to use Credit Karma to this very day. The best part of all is that it’s free. If you haven’t signed up already go do it today.

credit karma mobile Phone

With Credit Karma, you can check your current credit score and they will provide you some tips, tricks and ideas for free to help you immediately improve it if needed. Make sure you have active lines of credit open like credit cards and the like. Make sure you have nothing in collections and no late payments on your credit report. If you happen to find any errors in your report you can either dispute them or request they be removed in writing. If you want to learn more about how to get your credit report for free, check out my YouTube video below.

How much money do you need to put down on a house?

You could qualify for a first-time loan and home purchasing programs where you could put down as little as 0% to 3% to purchase the property. I strongly recommend though that you put down at least 20%, which is typically the minimum down payment to avoid paying PMI. PMI or private mortgage insurance is an insurance to bridge the gap on lower down payments to the 20% equity level on the value of the property. For planning purposes, on a $100k property, plan on saving at least $20k for your down payment. You’re also going to need funds set aside for closing costs. Typically, they can range anywhere between 5-6% of the loan’s total value. These numbers are a general ballpark guide and not a guarantee of what your closing costs will be. Be sure to consult with your bank, loan office or the financial institution you plan on getting your home loan from for more details around estimated closing costs.

How to get pre-approved for your mortgage and home loan?

The next step is that you need to line up your finances for your home purchase. From a paperwork standpoint, you’re going to need to show your tax returns. Typically, you need to show your tax returns for the last couple of years, along with proof of your income. They’re most likely going to take the average of those last two years to determine how much you can borrow up to on your home loan. In addition to this, you’re going to need 2-6 months of bank statements, current proof of employment, any other proof of forms of income and a list of all of your assets and liabilities. 

Now the important part is to see how much you can get pre-qualified for. Remember to not have them run your credit score yet. Share with them your free credit score from Credit Karma just to see what you can qualify for. Try to do this with at least 2-3 lenders so you have all your paperwork ready to deploy in the event that you’re ready to go through with your purchase. 

Come up with your list of requirements for your home purchasing plan

Now that you know what you pre-qualify you have an idea of the price range of the property you can purchase. I recommend bumping up the price range by an additional 5-10%. The reason why is you can always offer a lower price for the property than what is being asked for. Now you need to find that property.

Are you going to be purchasing a single-family, a condo or possibly a duplex to collect some rental income while you live in the other unit? Are you focused on schools, proximity to public transportation, commuting distance from your place of work, proximity to family and/or local amenities? How many bedrooms, bathrooms, floors, square footage, size of the yard, parking needs, and anything else you deem important? Are you looking for a new, turnkey home or possibly a fixer-upper?

What you will find very quickly, is that you will be adjusting your home requirements with what is actually available in the market for your given price range. So the sooner you come up with your requirements and you get into the market looking for properties, the better off you will be. 

Location is one of the most critical factors in your home purchasing process

As the saying goes, it’s all about Location, location, location – this is so very important in locating any property you want to purchase. First, make sure you’re searching in locations where the homes are in your pre-qualified price range. Start with all the free online websites like Zillow, Trulia and others. Ideally, look for properties in your price range and that fit your predetermined criteria. Go to as many open houses as you possibly can. When you’re walking through these properties try to get a pulse of what is going on in your local market as well. Get a good understanding of the neighborhoods, trends in property values, and any other information you deem important in your home search process. Remember you can always renovate a property in the future if needed, but you can’t change its location.

Consider adding properties to your search that need minor cosmetic work

What I mean is, do they need a fresh coat of paint or some simple yard work clean up? Properties like this are in overall good shape but need some quick low-cost renovations and they usually can be had below market value. These are the potential hidden gems in the market. If you’re also willing to put in the work yourself you could apply your sweat equity into the property, increasing its value after these minor renovations. Try to stay away from expensive renovations. Focus and prioritize the ones that will increase the property’s value and make it move-in ready. 

I would still recommend you have a contractor check your prospective property out just so you can get an understanding of what budget you need in place to cover the time and costs for a post-purchase renovation. There are a ton of amazing resources today for finding contractors. Start with recommendations from friends, family and neighbors first. Word of mouth is usually best and then expand your search online if needed. A good free online source is Yelp. Also, check the better business bureau and also check to make sure they’re licensing if any is up to date on your state’s licensure website. The more contractor bids, the research you do the better prepared you will be and the more you will learn about the renovation you’re considering to take on.

Make an offer on the home you’re looking to purchase

Now that you have your plan and found your property, you can finally make an offer! It is very important that you negotiate a price that keeps you within your budget. Also, make sure as part of your offer you have contingencies if your financing falls through or you happen to discover something during your home inspection. This is where a combination of your attorney and realtor can provide guidance in the home purchase process.

Secure your home loan financing and prepare for closing

Remember when you received your home loan pre-qualification from multiple lenders? Now you want to take those pre-qualified offers and turn them into pre-approvals. You want to have those potential lenders quickly offer your specific loan terms. It is OK for them to pull a credit inquiry on you at this point in time. Don’t worry about having multiple financial institutions check your credit, it should show up as one hard hit on your credit report. Make sure to monitor this with Credit Karma during this process, just in case. Also, make sure you don’t open any lines of credit or move around large sums of money in your financial accounts during this time. You don’t want any red flags that could hinder the home financing process. 

It is critical that you shop around and get the best terms and lowest rate you possibly can. Get those home inspections. Be present for the inspections. Walk through the property and ask as many questions as you can. Usually, something always comes up during an inspection. Now is the time to bring in those contractors you lined up, share your inspection results with them and go over any planned renovations so that you have a final understanding of what you could be in for out of pocket on the property. Always add some margin to any estimate. Increase whatever estimate you get by 20% in cost and in time. Plan for things to go over budget and take longer to complete.

If you’re looking for a turnkey company that will do all the hard work for you in the home loan search process, then look no further than LendingTree. LendingTree is a financial technology company that is partnered with all the top lenders and provides you a simple-to-use interface where within minutes you can find the loan partner to help you secure the financing for your first home. Check out LendingTree below. 

#1 Rated Home Loan Mortgage & Refinancing Platform

#1 Rated Home Loan Mortgage & Refinancing Platform

If you’re looking to get you the best deal possible on your loans, period. By giving you multiple offers from several lenders in a matter of minutes, they make comparison shopping easy. LendingTree is a leading online loan marketplace with one of the largest networks of lenders in the nation. And we all know-when lenders compete for your business, you win!

LendingTree Hero

For more information on mortgages, click on the “How to Get a Mortgage” guide from the usa.gov website.

Homeowners insurance for your first home

In addition to securing financing, you’re going to need insurance for your home purchase. Gabi is similar to LendingTree in that they’re a search engine solution to help you find the best home insurance for your home from multiple national leading insurers. Answer some questions and secure insurance quickly for your home today using the link below to Gabi.

#1 Rated For Home, Renters, Auto Insurance & More

#1 Rated For Home, Renters, Auto Insurance & More

Insurance companies do not reward you for your loyalty, so always price around to see if there are better deals to be had out in the open market. There is no better company out there for auto, home, renters, landlord and umbrella policy insurance comparison shopping than Gabi. Within a couple of minutes you’ll be able find the policy that is the best fit. Try Gabi and save!

gabi phone

Closing on your first home

At this point, you have done your home inspections, discovered any potential issues, and possibly attempted to negotiate your property down a bit if you discovered anything that needs to be fixed. You will also need to go through an appraisal, where you can see what the property is actually valued at. If all of this is falling into place with all parties involved, you could expect to typically close and get ownership of your home within 30-45 days.

Homeownership comes with specific tax rules and benefits. Please click the link to the IRS website for additional information.

Summary

Congratulations! If you followed these steps, you made it through the process to purchase your first home. It is exciting, scary and extremely fulfilling to finally own your own home. Be sure to read my information on budgeting and investing so that you can maximize your cash flow going forward. 

Please share your thoughts below on the home buying process. If you have any tips and strategies you would like to share, I would like to hear them. I wish you all the best in your home purchase process.

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Frank Makrides

Frank Makrides

Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.

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